Let’s use alchemy to make dividends. They use alchemy to make gold? Alchemy is usually trying to turn base materials like lead into gold. Ok, so chemical companies use science to turn base raw materials into useful stuff, like plastics and chemicals. And we will not be collecting gold, we will be collecting dividend checks from our original investment. So we are trying to turn cash into more cash. Ok, so there is no alchemy involved. If only it was that easy.
So Dow Chemical (DOW) and DuPont (DD) plan on doing a merger of equals. This is when 2 companies combine and both companies own 50% of the new company. After that, they already plan on splitting into 3 companies. So an investment in either company should give us shares in 3 new highly focused companies. Just like alchemy, but not really.
By them doing this, we will have 3 newer, leaner, more focused, companies. Now we need to pick a company from our 2 choices. Since they are combining, the biggest choice between the 2 is dividends yield. Dow Chemical (DOW) is 3.9% and DuPont (DD) is 2.6%, so our winner is Dow Chemical (DOW). And even if the merger does not go through, we will still have the higher dividend yield.
What we Bought
Therefore, we bought 9 shares for $428.83, our biggest purchase yet. DuPont (DD) is about 22% down from its 52 week high and Dow Chemical (DOW) is About 17% off. Giving that the market is flat last year, down this year, we will receive some dividends, and expect the companies to add value, we expect this investment to go up. 20% down from the 52 week high, + 10% up for 2 years of stock growth, + 4% dividend yield, and + 10% value synergies, equals an increase of 44%. $428.83 × 144% equals over $600. So, in a way, my plan will equal investing $200 in 3 separate companies. Hopefully all of them pay a dividend, since the 2 current ones pay dividends.
So our starting dividend is $16.56. If we get our $600 in stocks at a 3.5% yield, it can go up to $21 by the end of 2018. This will bring us up to 4.9% YOC (Yield on Cost). Not too bad. And if it doesn’t work out, we still get our 3.9% yield with a couple of increase. Not quite alchemy, but I will take it.
Do you Use alchemy to make dividends? Do you like the merger then split up for more dividends. Please feel free to share in the comment section below.
- DOW – We own Shares
- DD – We do not own shares